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R&D Competence & Absorptive Capacity
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Transcript of R&D Competence & Absorptive Capacity
RampD Competence ampAbsorptive Capacity
The ideal RampD Organization is
bull Fastbull Efficientbull Close to the leading edge
of sciencebull Generating critical 1048784
knowledge internally bull Creative and freewheelingbull Staffed by the best
people 1048784
But close to the business and the customer
But able to take advantage of outside developments
But disciplined amp focused
But not dominated by prima donnas
Managing RampD thus means managing tension bull Between the long and the short term
bull Between ldquobasicrdquo and ldquoappliedrdquo research
bull Between the inside and the outside
bull Between pure technology focus and pure market focus
bull Between managing by results and managing by effort
Basic amp Applied researchbull Basic (Tier 1) ndash Often ldquoupstreamrdquo to ldquoappliedrdquo research ndash Often motivated by curiosity rather than by the pursui
t of profit ndash Often focused on the longer term ndash Often generates significant ldquospilloversrdquobull Applied (Tier 3) ndash Usually more ldquodownstreamrdquo and closer to the market ndash Often engaged in in the hope of profit ndash Less likely to generate spillovers
Where on the S curve is basic researchlikely to be most important
Performance
Time
Takeoff
Ferment
Maturity
Disruption
But does ldquobasicrdquo research alwaysprecede ldquoappliedrdquo work
Basic Applied
Understand the world Use that understanding to make widgets
How easy is it to make money from basic research
Appropriability is
Tight
Loose
Complementary assets are
Freely available
Tightly held
Is ldquobasicrdquo research always ldquopublicrdquo research
Work for prestige pleasure
Curiosity driven
Directly applied make the widget work
Work for money
Research before the World Wars Goal Understand the world
First ldquogentlemenrdquo
amp then Universities Foundation
s
Incentive prestige fun the social good
Firms
Incentive Make $$
Goal Make the widget work
Research before the World Wars
ldquoBasicrdquo ldquoCuriosity drivenrdquo research
ldquoAppliedrdquo research
Researchers motivated by the intrinsic interest of the problem orientated to their peers not to application
Choice of problems dictated by individual researchers on the basis of curiosity
Researchers motivated by the desire to make money have an impact on the world
Choice or problems motivated by the needs of the market place
Research before the World Wars
bull ldquoBasicrdquo research makes enormous progress but few firms invest in it
ndash Except the German chemical industrybull Many major technological advances driven by en
gineers ldquotinkeringrdquo ndash Steel Steambull And technological advances that do use science
use old publicly available science ndash Electricity ndash Telephony
Sputnik and the World WarsGoal Understand the world
Incentive prestige fun the social good
Goal Make the widget work
Incentive Make $$
Firms
RadarThe Atom BombPenicillanThe man on the moon
After the WarsGoal Understand the world
Incentive Make $$
Goal Make the widget work
Incentive prestige fun the social good
CentralResearch Labs
UniversitiesFoundations
Office of Naval Research
NIH
NASA DOD TraditionalApplied Research
Corporate Research Labsin the Golden Agebull Bell Labsbull RCA Sarnoff Labsbull Xerox Parcbull IBM amp the Watson Labsbull GEbull Alcoabull DuPontbull Kodak
The Golden Age Research Model ldquoBuild it and they will comerdquo
Do the very best science
Make major breakthroughs
Take them to the marketAnd get really rich
For Example
The transistorThe CAT scanner CohenBoyer patent NylonProtease Inhibitors
Core assumptions of ldquogolden agerdquo researchbull Curiosity driven ndash understand the probl
ems and the applications will follow
bull Not overly constrained by financial or cost goals
bull Hire the very best people and give them freedom
bull Stay closely connected to the university and to the community of public science
More recentlyThe Golden Age model in questionbull Many firms unable to capitalize on major discove
ries or benefits take years to emerge ndash The RCA disc ndash Xerox PARC ndash Kevlar ndash Lucent amp Bell Labsbull A significant number of breakthroughs come thro
ugh close usermarket contact not from the corporate labs
ndash EVH examples othershellip
Why would a private firm ever invest in basic researchbull Monopoly power
ndash (Tight appropriability or tightly held complementary assets)
bull Maintain amp attract key people
ndash (Do scientists pay to do good science)
bull Build absorptive capacity
Absorptive Capacity
bull What
ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit
bull Why
ndash Much key knowledge generated outside
raquo ldquoBasicrdquo research
raquo Competitive research
raquo Knowledge elsewhere in the firmbull How
Building absorptive capacity
bull Reading the journals is not enough to understand outside developments one must invest in the science
- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th
at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana
gedincented differently
Current ldquobest practicerdquo attempts tobalance amp integrate the two poles
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Some firms continue to fund centralresearch aggressively
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Genomics Photonics Msoft PampG
But others have moved away from central research completely
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Intel
A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier
3)
bull Organizational structure
bull Control over the central research budget
bull Processes or temporary structures cross functional teams working groups
bull ldquoIn-boundrdquo marketing
Many companies set explicit funding levels
Many firms give some control over central research funding to the business units
Or experiment with alternativeorganizational forms
AR
Science
AR AR
PD PD PD
AR= Applied ResearchPD = Product developmentA= Acquisitions
A A A
Science
AR AR AR
PD PD PD
A A A
Other firms have experimented with hybrid organizational structures
Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy
Focused cross functional coordination More efficient development Development of teamand management skills
Focused attention to multiple objectives Best of both worlds coordination and specialization
Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business
Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills
Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds
Centers of Excellence Teams Matrix
CEO
BVA BVB BVC
function 1
function 2
function 3
CEO
BV1 BV2 BV3
RampD Area 2
RampD Area 3
Heavyweight Project Team
Degree of TeamLeader Influence
Team Leader ENGINEERINGMFGMKG
Market
concepts
All RampD structures have limitations that can (in principle) be managed with the right processes
Making Central Research more Decentralized Making Decentralized Research more Central
Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology
Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines
Pay for PerformanceManaging technical professionals
Pay for Performance
bull Assume that
ndash Output y = a +
ndash Where a is the ldquoactionrdquo taken by the employee
ndash And is noise
Pay for Performance (2)
bull Assume that compensation w is
ndash w = s + by
ndash Where s is salary
bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation
Pay for Performance (3)
bull Will technical professionals (scientists engineers) work harder if b is increased
bull What will happen if b = 0
bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed
Getting what you pay forManaging technical professionals
Getting what you pay for
bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y
bull But we can measure p an approximation to y
bull Let w = s + b(p)
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
The ideal RampD Organization is
bull Fastbull Efficientbull Close to the leading edge
of sciencebull Generating critical 1048784
knowledge internally bull Creative and freewheelingbull Staffed by the best
people 1048784
But close to the business and the customer
But able to take advantage of outside developments
But disciplined amp focused
But not dominated by prima donnas
Managing RampD thus means managing tension bull Between the long and the short term
bull Between ldquobasicrdquo and ldquoappliedrdquo research
bull Between the inside and the outside
bull Between pure technology focus and pure market focus
bull Between managing by results and managing by effort
Basic amp Applied researchbull Basic (Tier 1) ndash Often ldquoupstreamrdquo to ldquoappliedrdquo research ndash Often motivated by curiosity rather than by the pursui
t of profit ndash Often focused on the longer term ndash Often generates significant ldquospilloversrdquobull Applied (Tier 3) ndash Usually more ldquodownstreamrdquo and closer to the market ndash Often engaged in in the hope of profit ndash Less likely to generate spillovers
Where on the S curve is basic researchlikely to be most important
Performance
Time
Takeoff
Ferment
Maturity
Disruption
But does ldquobasicrdquo research alwaysprecede ldquoappliedrdquo work
Basic Applied
Understand the world Use that understanding to make widgets
How easy is it to make money from basic research
Appropriability is
Tight
Loose
Complementary assets are
Freely available
Tightly held
Is ldquobasicrdquo research always ldquopublicrdquo research
Work for prestige pleasure
Curiosity driven
Directly applied make the widget work
Work for money
Research before the World Wars Goal Understand the world
First ldquogentlemenrdquo
amp then Universities Foundation
s
Incentive prestige fun the social good
Firms
Incentive Make $$
Goal Make the widget work
Research before the World Wars
ldquoBasicrdquo ldquoCuriosity drivenrdquo research
ldquoAppliedrdquo research
Researchers motivated by the intrinsic interest of the problem orientated to their peers not to application
Choice of problems dictated by individual researchers on the basis of curiosity
Researchers motivated by the desire to make money have an impact on the world
Choice or problems motivated by the needs of the market place
Research before the World Wars
bull ldquoBasicrdquo research makes enormous progress but few firms invest in it
ndash Except the German chemical industrybull Many major technological advances driven by en
gineers ldquotinkeringrdquo ndash Steel Steambull And technological advances that do use science
use old publicly available science ndash Electricity ndash Telephony
Sputnik and the World WarsGoal Understand the world
Incentive prestige fun the social good
Goal Make the widget work
Incentive Make $$
Firms
RadarThe Atom BombPenicillanThe man on the moon
After the WarsGoal Understand the world
Incentive Make $$
Goal Make the widget work
Incentive prestige fun the social good
CentralResearch Labs
UniversitiesFoundations
Office of Naval Research
NIH
NASA DOD TraditionalApplied Research
Corporate Research Labsin the Golden Agebull Bell Labsbull RCA Sarnoff Labsbull Xerox Parcbull IBM amp the Watson Labsbull GEbull Alcoabull DuPontbull Kodak
The Golden Age Research Model ldquoBuild it and they will comerdquo
Do the very best science
Make major breakthroughs
Take them to the marketAnd get really rich
For Example
The transistorThe CAT scanner CohenBoyer patent NylonProtease Inhibitors
Core assumptions of ldquogolden agerdquo researchbull Curiosity driven ndash understand the probl
ems and the applications will follow
bull Not overly constrained by financial or cost goals
bull Hire the very best people and give them freedom
bull Stay closely connected to the university and to the community of public science
More recentlyThe Golden Age model in questionbull Many firms unable to capitalize on major discove
ries or benefits take years to emerge ndash The RCA disc ndash Xerox PARC ndash Kevlar ndash Lucent amp Bell Labsbull A significant number of breakthroughs come thro
ugh close usermarket contact not from the corporate labs
ndash EVH examples othershellip
Why would a private firm ever invest in basic researchbull Monopoly power
ndash (Tight appropriability or tightly held complementary assets)
bull Maintain amp attract key people
ndash (Do scientists pay to do good science)
bull Build absorptive capacity
Absorptive Capacity
bull What
ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit
bull Why
ndash Much key knowledge generated outside
raquo ldquoBasicrdquo research
raquo Competitive research
raquo Knowledge elsewhere in the firmbull How
Building absorptive capacity
bull Reading the journals is not enough to understand outside developments one must invest in the science
- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th
at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana
gedincented differently
Current ldquobest practicerdquo attempts tobalance amp integrate the two poles
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Some firms continue to fund centralresearch aggressively
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Genomics Photonics Msoft PampG
But others have moved away from central research completely
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Intel
A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier
3)
bull Organizational structure
bull Control over the central research budget
bull Processes or temporary structures cross functional teams working groups
bull ldquoIn-boundrdquo marketing
Many companies set explicit funding levels
Many firms give some control over central research funding to the business units
Or experiment with alternativeorganizational forms
AR
Science
AR AR
PD PD PD
AR= Applied ResearchPD = Product developmentA= Acquisitions
A A A
Science
AR AR AR
PD PD PD
A A A
Other firms have experimented with hybrid organizational structures
Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy
Focused cross functional coordination More efficient development Development of teamand management skills
Focused attention to multiple objectives Best of both worlds coordination and specialization
Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business
Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills
Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds
Centers of Excellence Teams Matrix
CEO
BVA BVB BVC
function 1
function 2
function 3
CEO
BV1 BV2 BV3
RampD Area 2
RampD Area 3
Heavyweight Project Team
Degree of TeamLeader Influence
Team Leader ENGINEERINGMFGMKG
Market
concepts
All RampD structures have limitations that can (in principle) be managed with the right processes
Making Central Research more Decentralized Making Decentralized Research more Central
Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology
Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines
Pay for PerformanceManaging technical professionals
Pay for Performance
bull Assume that
ndash Output y = a +
ndash Where a is the ldquoactionrdquo taken by the employee
ndash And is noise
Pay for Performance (2)
bull Assume that compensation w is
ndash w = s + by
ndash Where s is salary
bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation
Pay for Performance (3)
bull Will technical professionals (scientists engineers) work harder if b is increased
bull What will happen if b = 0
bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed
Getting what you pay forManaging technical professionals
Getting what you pay for
bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y
bull But we can measure p an approximation to y
bull Let w = s + b(p)
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
Managing RampD thus means managing tension bull Between the long and the short term
bull Between ldquobasicrdquo and ldquoappliedrdquo research
bull Between the inside and the outside
bull Between pure technology focus and pure market focus
bull Between managing by results and managing by effort
Basic amp Applied researchbull Basic (Tier 1) ndash Often ldquoupstreamrdquo to ldquoappliedrdquo research ndash Often motivated by curiosity rather than by the pursui
t of profit ndash Often focused on the longer term ndash Often generates significant ldquospilloversrdquobull Applied (Tier 3) ndash Usually more ldquodownstreamrdquo and closer to the market ndash Often engaged in in the hope of profit ndash Less likely to generate spillovers
Where on the S curve is basic researchlikely to be most important
Performance
Time
Takeoff
Ferment
Maturity
Disruption
But does ldquobasicrdquo research alwaysprecede ldquoappliedrdquo work
Basic Applied
Understand the world Use that understanding to make widgets
How easy is it to make money from basic research
Appropriability is
Tight
Loose
Complementary assets are
Freely available
Tightly held
Is ldquobasicrdquo research always ldquopublicrdquo research
Work for prestige pleasure
Curiosity driven
Directly applied make the widget work
Work for money
Research before the World Wars Goal Understand the world
First ldquogentlemenrdquo
amp then Universities Foundation
s
Incentive prestige fun the social good
Firms
Incentive Make $$
Goal Make the widget work
Research before the World Wars
ldquoBasicrdquo ldquoCuriosity drivenrdquo research
ldquoAppliedrdquo research
Researchers motivated by the intrinsic interest of the problem orientated to their peers not to application
Choice of problems dictated by individual researchers on the basis of curiosity
Researchers motivated by the desire to make money have an impact on the world
Choice or problems motivated by the needs of the market place
Research before the World Wars
bull ldquoBasicrdquo research makes enormous progress but few firms invest in it
ndash Except the German chemical industrybull Many major technological advances driven by en
gineers ldquotinkeringrdquo ndash Steel Steambull And technological advances that do use science
use old publicly available science ndash Electricity ndash Telephony
Sputnik and the World WarsGoal Understand the world
Incentive prestige fun the social good
Goal Make the widget work
Incentive Make $$
Firms
RadarThe Atom BombPenicillanThe man on the moon
After the WarsGoal Understand the world
Incentive Make $$
Goal Make the widget work
Incentive prestige fun the social good
CentralResearch Labs
UniversitiesFoundations
Office of Naval Research
NIH
NASA DOD TraditionalApplied Research
Corporate Research Labsin the Golden Agebull Bell Labsbull RCA Sarnoff Labsbull Xerox Parcbull IBM amp the Watson Labsbull GEbull Alcoabull DuPontbull Kodak
The Golden Age Research Model ldquoBuild it and they will comerdquo
Do the very best science
Make major breakthroughs
Take them to the marketAnd get really rich
For Example
The transistorThe CAT scanner CohenBoyer patent NylonProtease Inhibitors
Core assumptions of ldquogolden agerdquo researchbull Curiosity driven ndash understand the probl
ems and the applications will follow
bull Not overly constrained by financial or cost goals
bull Hire the very best people and give them freedom
bull Stay closely connected to the university and to the community of public science
More recentlyThe Golden Age model in questionbull Many firms unable to capitalize on major discove
ries or benefits take years to emerge ndash The RCA disc ndash Xerox PARC ndash Kevlar ndash Lucent amp Bell Labsbull A significant number of breakthroughs come thro
ugh close usermarket contact not from the corporate labs
ndash EVH examples othershellip
Why would a private firm ever invest in basic researchbull Monopoly power
ndash (Tight appropriability or tightly held complementary assets)
bull Maintain amp attract key people
ndash (Do scientists pay to do good science)
bull Build absorptive capacity
Absorptive Capacity
bull What
ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit
bull Why
ndash Much key knowledge generated outside
raquo ldquoBasicrdquo research
raquo Competitive research
raquo Knowledge elsewhere in the firmbull How
Building absorptive capacity
bull Reading the journals is not enough to understand outside developments one must invest in the science
- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th
at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana
gedincented differently
Current ldquobest practicerdquo attempts tobalance amp integrate the two poles
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Some firms continue to fund centralresearch aggressively
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Genomics Photonics Msoft PampG
But others have moved away from central research completely
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Intel
A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier
3)
bull Organizational structure
bull Control over the central research budget
bull Processes or temporary structures cross functional teams working groups
bull ldquoIn-boundrdquo marketing
Many companies set explicit funding levels
Many firms give some control over central research funding to the business units
Or experiment with alternativeorganizational forms
AR
Science
AR AR
PD PD PD
AR= Applied ResearchPD = Product developmentA= Acquisitions
A A A
Science
AR AR AR
PD PD PD
A A A
Other firms have experimented with hybrid organizational structures
Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy
Focused cross functional coordination More efficient development Development of teamand management skills
Focused attention to multiple objectives Best of both worlds coordination and specialization
Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business
Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills
Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds
Centers of Excellence Teams Matrix
CEO
BVA BVB BVC
function 1
function 2
function 3
CEO
BV1 BV2 BV3
RampD Area 2
RampD Area 3
Heavyweight Project Team
Degree of TeamLeader Influence
Team Leader ENGINEERINGMFGMKG
Market
concepts
All RampD structures have limitations that can (in principle) be managed with the right processes
Making Central Research more Decentralized Making Decentralized Research more Central
Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology
Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines
Pay for PerformanceManaging technical professionals
Pay for Performance
bull Assume that
ndash Output y = a +
ndash Where a is the ldquoactionrdquo taken by the employee
ndash And is noise
Pay for Performance (2)
bull Assume that compensation w is
ndash w = s + by
ndash Where s is salary
bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation
Pay for Performance (3)
bull Will technical professionals (scientists engineers) work harder if b is increased
bull What will happen if b = 0
bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed
Getting what you pay forManaging technical professionals
Getting what you pay for
bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y
bull But we can measure p an approximation to y
bull Let w = s + b(p)
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
Basic amp Applied researchbull Basic (Tier 1) ndash Often ldquoupstreamrdquo to ldquoappliedrdquo research ndash Often motivated by curiosity rather than by the pursui
t of profit ndash Often focused on the longer term ndash Often generates significant ldquospilloversrdquobull Applied (Tier 3) ndash Usually more ldquodownstreamrdquo and closer to the market ndash Often engaged in in the hope of profit ndash Less likely to generate spillovers
Where on the S curve is basic researchlikely to be most important
Performance
Time
Takeoff
Ferment
Maturity
Disruption
But does ldquobasicrdquo research alwaysprecede ldquoappliedrdquo work
Basic Applied
Understand the world Use that understanding to make widgets
How easy is it to make money from basic research
Appropriability is
Tight
Loose
Complementary assets are
Freely available
Tightly held
Is ldquobasicrdquo research always ldquopublicrdquo research
Work for prestige pleasure
Curiosity driven
Directly applied make the widget work
Work for money
Research before the World Wars Goal Understand the world
First ldquogentlemenrdquo
amp then Universities Foundation
s
Incentive prestige fun the social good
Firms
Incentive Make $$
Goal Make the widget work
Research before the World Wars
ldquoBasicrdquo ldquoCuriosity drivenrdquo research
ldquoAppliedrdquo research
Researchers motivated by the intrinsic interest of the problem orientated to their peers not to application
Choice of problems dictated by individual researchers on the basis of curiosity
Researchers motivated by the desire to make money have an impact on the world
Choice or problems motivated by the needs of the market place
Research before the World Wars
bull ldquoBasicrdquo research makes enormous progress but few firms invest in it
ndash Except the German chemical industrybull Many major technological advances driven by en
gineers ldquotinkeringrdquo ndash Steel Steambull And technological advances that do use science
use old publicly available science ndash Electricity ndash Telephony
Sputnik and the World WarsGoal Understand the world
Incentive prestige fun the social good
Goal Make the widget work
Incentive Make $$
Firms
RadarThe Atom BombPenicillanThe man on the moon
After the WarsGoal Understand the world
Incentive Make $$
Goal Make the widget work
Incentive prestige fun the social good
CentralResearch Labs
UniversitiesFoundations
Office of Naval Research
NIH
NASA DOD TraditionalApplied Research
Corporate Research Labsin the Golden Agebull Bell Labsbull RCA Sarnoff Labsbull Xerox Parcbull IBM amp the Watson Labsbull GEbull Alcoabull DuPontbull Kodak
The Golden Age Research Model ldquoBuild it and they will comerdquo
Do the very best science
Make major breakthroughs
Take them to the marketAnd get really rich
For Example
The transistorThe CAT scanner CohenBoyer patent NylonProtease Inhibitors
Core assumptions of ldquogolden agerdquo researchbull Curiosity driven ndash understand the probl
ems and the applications will follow
bull Not overly constrained by financial or cost goals
bull Hire the very best people and give them freedom
bull Stay closely connected to the university and to the community of public science
More recentlyThe Golden Age model in questionbull Many firms unable to capitalize on major discove
ries or benefits take years to emerge ndash The RCA disc ndash Xerox PARC ndash Kevlar ndash Lucent amp Bell Labsbull A significant number of breakthroughs come thro
ugh close usermarket contact not from the corporate labs
ndash EVH examples othershellip
Why would a private firm ever invest in basic researchbull Monopoly power
ndash (Tight appropriability or tightly held complementary assets)
bull Maintain amp attract key people
ndash (Do scientists pay to do good science)
bull Build absorptive capacity
Absorptive Capacity
bull What
ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit
bull Why
ndash Much key knowledge generated outside
raquo ldquoBasicrdquo research
raquo Competitive research
raquo Knowledge elsewhere in the firmbull How
Building absorptive capacity
bull Reading the journals is not enough to understand outside developments one must invest in the science
- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th
at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana
gedincented differently
Current ldquobest practicerdquo attempts tobalance amp integrate the two poles
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Some firms continue to fund centralresearch aggressively
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Genomics Photonics Msoft PampG
But others have moved away from central research completely
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Intel
A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier
3)
bull Organizational structure
bull Control over the central research budget
bull Processes or temporary structures cross functional teams working groups
bull ldquoIn-boundrdquo marketing
Many companies set explicit funding levels
Many firms give some control over central research funding to the business units
Or experiment with alternativeorganizational forms
AR
Science
AR AR
PD PD PD
AR= Applied ResearchPD = Product developmentA= Acquisitions
A A A
Science
AR AR AR
PD PD PD
A A A
Other firms have experimented with hybrid organizational structures
Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy
Focused cross functional coordination More efficient development Development of teamand management skills
Focused attention to multiple objectives Best of both worlds coordination and specialization
Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business
Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills
Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds
Centers of Excellence Teams Matrix
CEO
BVA BVB BVC
function 1
function 2
function 3
CEO
BV1 BV2 BV3
RampD Area 2
RampD Area 3
Heavyweight Project Team
Degree of TeamLeader Influence
Team Leader ENGINEERINGMFGMKG
Market
concepts
All RampD structures have limitations that can (in principle) be managed with the right processes
Making Central Research more Decentralized Making Decentralized Research more Central
Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology
Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines
Pay for PerformanceManaging technical professionals
Pay for Performance
bull Assume that
ndash Output y = a +
ndash Where a is the ldquoactionrdquo taken by the employee
ndash And is noise
Pay for Performance (2)
bull Assume that compensation w is
ndash w = s + by
ndash Where s is salary
bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation
Pay for Performance (3)
bull Will technical professionals (scientists engineers) work harder if b is increased
bull What will happen if b = 0
bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed
Getting what you pay forManaging technical professionals
Getting what you pay for
bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y
bull But we can measure p an approximation to y
bull Let w = s + b(p)
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
Where on the S curve is basic researchlikely to be most important
Performance
Time
Takeoff
Ferment
Maturity
Disruption
But does ldquobasicrdquo research alwaysprecede ldquoappliedrdquo work
Basic Applied
Understand the world Use that understanding to make widgets
How easy is it to make money from basic research
Appropriability is
Tight
Loose
Complementary assets are
Freely available
Tightly held
Is ldquobasicrdquo research always ldquopublicrdquo research
Work for prestige pleasure
Curiosity driven
Directly applied make the widget work
Work for money
Research before the World Wars Goal Understand the world
First ldquogentlemenrdquo
amp then Universities Foundation
s
Incentive prestige fun the social good
Firms
Incentive Make $$
Goal Make the widget work
Research before the World Wars
ldquoBasicrdquo ldquoCuriosity drivenrdquo research
ldquoAppliedrdquo research
Researchers motivated by the intrinsic interest of the problem orientated to their peers not to application
Choice of problems dictated by individual researchers on the basis of curiosity
Researchers motivated by the desire to make money have an impact on the world
Choice or problems motivated by the needs of the market place
Research before the World Wars
bull ldquoBasicrdquo research makes enormous progress but few firms invest in it
ndash Except the German chemical industrybull Many major technological advances driven by en
gineers ldquotinkeringrdquo ndash Steel Steambull And technological advances that do use science
use old publicly available science ndash Electricity ndash Telephony
Sputnik and the World WarsGoal Understand the world
Incentive prestige fun the social good
Goal Make the widget work
Incentive Make $$
Firms
RadarThe Atom BombPenicillanThe man on the moon
After the WarsGoal Understand the world
Incentive Make $$
Goal Make the widget work
Incentive prestige fun the social good
CentralResearch Labs
UniversitiesFoundations
Office of Naval Research
NIH
NASA DOD TraditionalApplied Research
Corporate Research Labsin the Golden Agebull Bell Labsbull RCA Sarnoff Labsbull Xerox Parcbull IBM amp the Watson Labsbull GEbull Alcoabull DuPontbull Kodak
The Golden Age Research Model ldquoBuild it and they will comerdquo
Do the very best science
Make major breakthroughs
Take them to the marketAnd get really rich
For Example
The transistorThe CAT scanner CohenBoyer patent NylonProtease Inhibitors
Core assumptions of ldquogolden agerdquo researchbull Curiosity driven ndash understand the probl
ems and the applications will follow
bull Not overly constrained by financial or cost goals
bull Hire the very best people and give them freedom
bull Stay closely connected to the university and to the community of public science
More recentlyThe Golden Age model in questionbull Many firms unable to capitalize on major discove
ries or benefits take years to emerge ndash The RCA disc ndash Xerox PARC ndash Kevlar ndash Lucent amp Bell Labsbull A significant number of breakthroughs come thro
ugh close usermarket contact not from the corporate labs
ndash EVH examples othershellip
Why would a private firm ever invest in basic researchbull Monopoly power
ndash (Tight appropriability or tightly held complementary assets)
bull Maintain amp attract key people
ndash (Do scientists pay to do good science)
bull Build absorptive capacity
Absorptive Capacity
bull What
ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit
bull Why
ndash Much key knowledge generated outside
raquo ldquoBasicrdquo research
raquo Competitive research
raquo Knowledge elsewhere in the firmbull How
Building absorptive capacity
bull Reading the journals is not enough to understand outside developments one must invest in the science
- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th
at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana
gedincented differently
Current ldquobest practicerdquo attempts tobalance amp integrate the two poles
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Some firms continue to fund centralresearch aggressively
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Genomics Photonics Msoft PampG
But others have moved away from central research completely
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Intel
A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier
3)
bull Organizational structure
bull Control over the central research budget
bull Processes or temporary structures cross functional teams working groups
bull ldquoIn-boundrdquo marketing
Many companies set explicit funding levels
Many firms give some control over central research funding to the business units
Or experiment with alternativeorganizational forms
AR
Science
AR AR
PD PD PD
AR= Applied ResearchPD = Product developmentA= Acquisitions
A A A
Science
AR AR AR
PD PD PD
A A A
Other firms have experimented with hybrid organizational structures
Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy
Focused cross functional coordination More efficient development Development of teamand management skills
Focused attention to multiple objectives Best of both worlds coordination and specialization
Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business
Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills
Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds
Centers of Excellence Teams Matrix
CEO
BVA BVB BVC
function 1
function 2
function 3
CEO
BV1 BV2 BV3
RampD Area 2
RampD Area 3
Heavyweight Project Team
Degree of TeamLeader Influence
Team Leader ENGINEERINGMFGMKG
Market
concepts
All RampD structures have limitations that can (in principle) be managed with the right processes
Making Central Research more Decentralized Making Decentralized Research more Central
Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology
Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines
Pay for PerformanceManaging technical professionals
Pay for Performance
bull Assume that
ndash Output y = a +
ndash Where a is the ldquoactionrdquo taken by the employee
ndash And is noise
Pay for Performance (2)
bull Assume that compensation w is
ndash w = s + by
ndash Where s is salary
bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation
Pay for Performance (3)
bull Will technical professionals (scientists engineers) work harder if b is increased
bull What will happen if b = 0
bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed
Getting what you pay forManaging technical professionals
Getting what you pay for
bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y
bull But we can measure p an approximation to y
bull Let w = s + b(p)
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
But does ldquobasicrdquo research alwaysprecede ldquoappliedrdquo work
Basic Applied
Understand the world Use that understanding to make widgets
How easy is it to make money from basic research
Appropriability is
Tight
Loose
Complementary assets are
Freely available
Tightly held
Is ldquobasicrdquo research always ldquopublicrdquo research
Work for prestige pleasure
Curiosity driven
Directly applied make the widget work
Work for money
Research before the World Wars Goal Understand the world
First ldquogentlemenrdquo
amp then Universities Foundation
s
Incentive prestige fun the social good
Firms
Incentive Make $$
Goal Make the widget work
Research before the World Wars
ldquoBasicrdquo ldquoCuriosity drivenrdquo research
ldquoAppliedrdquo research
Researchers motivated by the intrinsic interest of the problem orientated to their peers not to application
Choice of problems dictated by individual researchers on the basis of curiosity
Researchers motivated by the desire to make money have an impact on the world
Choice or problems motivated by the needs of the market place
Research before the World Wars
bull ldquoBasicrdquo research makes enormous progress but few firms invest in it
ndash Except the German chemical industrybull Many major technological advances driven by en
gineers ldquotinkeringrdquo ndash Steel Steambull And technological advances that do use science
use old publicly available science ndash Electricity ndash Telephony
Sputnik and the World WarsGoal Understand the world
Incentive prestige fun the social good
Goal Make the widget work
Incentive Make $$
Firms
RadarThe Atom BombPenicillanThe man on the moon
After the WarsGoal Understand the world
Incentive Make $$
Goal Make the widget work
Incentive prestige fun the social good
CentralResearch Labs
UniversitiesFoundations
Office of Naval Research
NIH
NASA DOD TraditionalApplied Research
Corporate Research Labsin the Golden Agebull Bell Labsbull RCA Sarnoff Labsbull Xerox Parcbull IBM amp the Watson Labsbull GEbull Alcoabull DuPontbull Kodak
The Golden Age Research Model ldquoBuild it and they will comerdquo
Do the very best science
Make major breakthroughs
Take them to the marketAnd get really rich
For Example
The transistorThe CAT scanner CohenBoyer patent NylonProtease Inhibitors
Core assumptions of ldquogolden agerdquo researchbull Curiosity driven ndash understand the probl
ems and the applications will follow
bull Not overly constrained by financial or cost goals
bull Hire the very best people and give them freedom
bull Stay closely connected to the university and to the community of public science
More recentlyThe Golden Age model in questionbull Many firms unable to capitalize on major discove
ries or benefits take years to emerge ndash The RCA disc ndash Xerox PARC ndash Kevlar ndash Lucent amp Bell Labsbull A significant number of breakthroughs come thro
ugh close usermarket contact not from the corporate labs
ndash EVH examples othershellip
Why would a private firm ever invest in basic researchbull Monopoly power
ndash (Tight appropriability or tightly held complementary assets)
bull Maintain amp attract key people
ndash (Do scientists pay to do good science)
bull Build absorptive capacity
Absorptive Capacity
bull What
ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit
bull Why
ndash Much key knowledge generated outside
raquo ldquoBasicrdquo research
raquo Competitive research
raquo Knowledge elsewhere in the firmbull How
Building absorptive capacity
bull Reading the journals is not enough to understand outside developments one must invest in the science
- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th
at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana
gedincented differently
Current ldquobest practicerdquo attempts tobalance amp integrate the two poles
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Some firms continue to fund centralresearch aggressively
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Genomics Photonics Msoft PampG
But others have moved away from central research completely
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Intel
A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier
3)
bull Organizational structure
bull Control over the central research budget
bull Processes or temporary structures cross functional teams working groups
bull ldquoIn-boundrdquo marketing
Many companies set explicit funding levels
Many firms give some control over central research funding to the business units
Or experiment with alternativeorganizational forms
AR
Science
AR AR
PD PD PD
AR= Applied ResearchPD = Product developmentA= Acquisitions
A A A
Science
AR AR AR
PD PD PD
A A A
Other firms have experimented with hybrid organizational structures
Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy
Focused cross functional coordination More efficient development Development of teamand management skills
Focused attention to multiple objectives Best of both worlds coordination and specialization
Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business
Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills
Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds
Centers of Excellence Teams Matrix
CEO
BVA BVB BVC
function 1
function 2
function 3
CEO
BV1 BV2 BV3
RampD Area 2
RampD Area 3
Heavyweight Project Team
Degree of TeamLeader Influence
Team Leader ENGINEERINGMFGMKG
Market
concepts
All RampD structures have limitations that can (in principle) be managed with the right processes
Making Central Research more Decentralized Making Decentralized Research more Central
Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology
Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines
Pay for PerformanceManaging technical professionals
Pay for Performance
bull Assume that
ndash Output y = a +
ndash Where a is the ldquoactionrdquo taken by the employee
ndash And is noise
Pay for Performance (2)
bull Assume that compensation w is
ndash w = s + by
ndash Where s is salary
bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation
Pay for Performance (3)
bull Will technical professionals (scientists engineers) work harder if b is increased
bull What will happen if b = 0
bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed
Getting what you pay forManaging technical professionals
Getting what you pay for
bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y
bull But we can measure p an approximation to y
bull Let w = s + b(p)
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
How easy is it to make money from basic research
Appropriability is
Tight
Loose
Complementary assets are
Freely available
Tightly held
Is ldquobasicrdquo research always ldquopublicrdquo research
Work for prestige pleasure
Curiosity driven
Directly applied make the widget work
Work for money
Research before the World Wars Goal Understand the world
First ldquogentlemenrdquo
amp then Universities Foundation
s
Incentive prestige fun the social good
Firms
Incentive Make $$
Goal Make the widget work
Research before the World Wars
ldquoBasicrdquo ldquoCuriosity drivenrdquo research
ldquoAppliedrdquo research
Researchers motivated by the intrinsic interest of the problem orientated to their peers not to application
Choice of problems dictated by individual researchers on the basis of curiosity
Researchers motivated by the desire to make money have an impact on the world
Choice or problems motivated by the needs of the market place
Research before the World Wars
bull ldquoBasicrdquo research makes enormous progress but few firms invest in it
ndash Except the German chemical industrybull Many major technological advances driven by en
gineers ldquotinkeringrdquo ndash Steel Steambull And technological advances that do use science
use old publicly available science ndash Electricity ndash Telephony
Sputnik and the World WarsGoal Understand the world
Incentive prestige fun the social good
Goal Make the widget work
Incentive Make $$
Firms
RadarThe Atom BombPenicillanThe man on the moon
After the WarsGoal Understand the world
Incentive Make $$
Goal Make the widget work
Incentive prestige fun the social good
CentralResearch Labs
UniversitiesFoundations
Office of Naval Research
NIH
NASA DOD TraditionalApplied Research
Corporate Research Labsin the Golden Agebull Bell Labsbull RCA Sarnoff Labsbull Xerox Parcbull IBM amp the Watson Labsbull GEbull Alcoabull DuPontbull Kodak
The Golden Age Research Model ldquoBuild it and they will comerdquo
Do the very best science
Make major breakthroughs
Take them to the marketAnd get really rich
For Example
The transistorThe CAT scanner CohenBoyer patent NylonProtease Inhibitors
Core assumptions of ldquogolden agerdquo researchbull Curiosity driven ndash understand the probl
ems and the applications will follow
bull Not overly constrained by financial or cost goals
bull Hire the very best people and give them freedom
bull Stay closely connected to the university and to the community of public science
More recentlyThe Golden Age model in questionbull Many firms unable to capitalize on major discove
ries or benefits take years to emerge ndash The RCA disc ndash Xerox PARC ndash Kevlar ndash Lucent amp Bell Labsbull A significant number of breakthroughs come thro
ugh close usermarket contact not from the corporate labs
ndash EVH examples othershellip
Why would a private firm ever invest in basic researchbull Monopoly power
ndash (Tight appropriability or tightly held complementary assets)
bull Maintain amp attract key people
ndash (Do scientists pay to do good science)
bull Build absorptive capacity
Absorptive Capacity
bull What
ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit
bull Why
ndash Much key knowledge generated outside
raquo ldquoBasicrdquo research
raquo Competitive research
raquo Knowledge elsewhere in the firmbull How
Building absorptive capacity
bull Reading the journals is not enough to understand outside developments one must invest in the science
- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th
at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana
gedincented differently
Current ldquobest practicerdquo attempts tobalance amp integrate the two poles
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Some firms continue to fund centralresearch aggressively
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Genomics Photonics Msoft PampG
But others have moved away from central research completely
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Intel
A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier
3)
bull Organizational structure
bull Control over the central research budget
bull Processes or temporary structures cross functional teams working groups
bull ldquoIn-boundrdquo marketing
Many companies set explicit funding levels
Many firms give some control over central research funding to the business units
Or experiment with alternativeorganizational forms
AR
Science
AR AR
PD PD PD
AR= Applied ResearchPD = Product developmentA= Acquisitions
A A A
Science
AR AR AR
PD PD PD
A A A
Other firms have experimented with hybrid organizational structures
Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy
Focused cross functional coordination More efficient development Development of teamand management skills
Focused attention to multiple objectives Best of both worlds coordination and specialization
Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business
Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills
Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds
Centers of Excellence Teams Matrix
CEO
BVA BVB BVC
function 1
function 2
function 3
CEO
BV1 BV2 BV3
RampD Area 2
RampD Area 3
Heavyweight Project Team
Degree of TeamLeader Influence
Team Leader ENGINEERINGMFGMKG
Market
concepts
All RampD structures have limitations that can (in principle) be managed with the right processes
Making Central Research more Decentralized Making Decentralized Research more Central
Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology
Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines
Pay for PerformanceManaging technical professionals
Pay for Performance
bull Assume that
ndash Output y = a +
ndash Where a is the ldquoactionrdquo taken by the employee
ndash And is noise
Pay for Performance (2)
bull Assume that compensation w is
ndash w = s + by
ndash Where s is salary
bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation
Pay for Performance (3)
bull Will technical professionals (scientists engineers) work harder if b is increased
bull What will happen if b = 0
bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed
Getting what you pay forManaging technical professionals
Getting what you pay for
bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y
bull But we can measure p an approximation to y
bull Let w = s + b(p)
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
Is ldquobasicrdquo research always ldquopublicrdquo research
Work for prestige pleasure
Curiosity driven
Directly applied make the widget work
Work for money
Research before the World Wars Goal Understand the world
First ldquogentlemenrdquo
amp then Universities Foundation
s
Incentive prestige fun the social good
Firms
Incentive Make $$
Goal Make the widget work
Research before the World Wars
ldquoBasicrdquo ldquoCuriosity drivenrdquo research
ldquoAppliedrdquo research
Researchers motivated by the intrinsic interest of the problem orientated to their peers not to application
Choice of problems dictated by individual researchers on the basis of curiosity
Researchers motivated by the desire to make money have an impact on the world
Choice or problems motivated by the needs of the market place
Research before the World Wars
bull ldquoBasicrdquo research makes enormous progress but few firms invest in it
ndash Except the German chemical industrybull Many major technological advances driven by en
gineers ldquotinkeringrdquo ndash Steel Steambull And technological advances that do use science
use old publicly available science ndash Electricity ndash Telephony
Sputnik and the World WarsGoal Understand the world
Incentive prestige fun the social good
Goal Make the widget work
Incentive Make $$
Firms
RadarThe Atom BombPenicillanThe man on the moon
After the WarsGoal Understand the world
Incentive Make $$
Goal Make the widget work
Incentive prestige fun the social good
CentralResearch Labs
UniversitiesFoundations
Office of Naval Research
NIH
NASA DOD TraditionalApplied Research
Corporate Research Labsin the Golden Agebull Bell Labsbull RCA Sarnoff Labsbull Xerox Parcbull IBM amp the Watson Labsbull GEbull Alcoabull DuPontbull Kodak
The Golden Age Research Model ldquoBuild it and they will comerdquo
Do the very best science
Make major breakthroughs
Take them to the marketAnd get really rich
For Example
The transistorThe CAT scanner CohenBoyer patent NylonProtease Inhibitors
Core assumptions of ldquogolden agerdquo researchbull Curiosity driven ndash understand the probl
ems and the applications will follow
bull Not overly constrained by financial or cost goals
bull Hire the very best people and give them freedom
bull Stay closely connected to the university and to the community of public science
More recentlyThe Golden Age model in questionbull Many firms unable to capitalize on major discove
ries or benefits take years to emerge ndash The RCA disc ndash Xerox PARC ndash Kevlar ndash Lucent amp Bell Labsbull A significant number of breakthroughs come thro
ugh close usermarket contact not from the corporate labs
ndash EVH examples othershellip
Why would a private firm ever invest in basic researchbull Monopoly power
ndash (Tight appropriability or tightly held complementary assets)
bull Maintain amp attract key people
ndash (Do scientists pay to do good science)
bull Build absorptive capacity
Absorptive Capacity
bull What
ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit
bull Why
ndash Much key knowledge generated outside
raquo ldquoBasicrdquo research
raquo Competitive research
raquo Knowledge elsewhere in the firmbull How
Building absorptive capacity
bull Reading the journals is not enough to understand outside developments one must invest in the science
- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th
at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana
gedincented differently
Current ldquobest practicerdquo attempts tobalance amp integrate the two poles
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Some firms continue to fund centralresearch aggressively
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Genomics Photonics Msoft PampG
But others have moved away from central research completely
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Intel
A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier
3)
bull Organizational structure
bull Control over the central research budget
bull Processes or temporary structures cross functional teams working groups
bull ldquoIn-boundrdquo marketing
Many companies set explicit funding levels
Many firms give some control over central research funding to the business units
Or experiment with alternativeorganizational forms
AR
Science
AR AR
PD PD PD
AR= Applied ResearchPD = Product developmentA= Acquisitions
A A A
Science
AR AR AR
PD PD PD
A A A
Other firms have experimented with hybrid organizational structures
Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy
Focused cross functional coordination More efficient development Development of teamand management skills
Focused attention to multiple objectives Best of both worlds coordination and specialization
Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business
Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills
Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds
Centers of Excellence Teams Matrix
CEO
BVA BVB BVC
function 1
function 2
function 3
CEO
BV1 BV2 BV3
RampD Area 2
RampD Area 3
Heavyweight Project Team
Degree of TeamLeader Influence
Team Leader ENGINEERINGMFGMKG
Market
concepts
All RampD structures have limitations that can (in principle) be managed with the right processes
Making Central Research more Decentralized Making Decentralized Research more Central
Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology
Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines
Pay for PerformanceManaging technical professionals
Pay for Performance
bull Assume that
ndash Output y = a +
ndash Where a is the ldquoactionrdquo taken by the employee
ndash And is noise
Pay for Performance (2)
bull Assume that compensation w is
ndash w = s + by
ndash Where s is salary
bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation
Pay for Performance (3)
bull Will technical professionals (scientists engineers) work harder if b is increased
bull What will happen if b = 0
bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed
Getting what you pay forManaging technical professionals
Getting what you pay for
bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y
bull But we can measure p an approximation to y
bull Let w = s + b(p)
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
Research before the World Wars Goal Understand the world
First ldquogentlemenrdquo
amp then Universities Foundation
s
Incentive prestige fun the social good
Firms
Incentive Make $$
Goal Make the widget work
Research before the World Wars
ldquoBasicrdquo ldquoCuriosity drivenrdquo research
ldquoAppliedrdquo research
Researchers motivated by the intrinsic interest of the problem orientated to their peers not to application
Choice of problems dictated by individual researchers on the basis of curiosity
Researchers motivated by the desire to make money have an impact on the world
Choice or problems motivated by the needs of the market place
Research before the World Wars
bull ldquoBasicrdquo research makes enormous progress but few firms invest in it
ndash Except the German chemical industrybull Many major technological advances driven by en
gineers ldquotinkeringrdquo ndash Steel Steambull And technological advances that do use science
use old publicly available science ndash Electricity ndash Telephony
Sputnik and the World WarsGoal Understand the world
Incentive prestige fun the social good
Goal Make the widget work
Incentive Make $$
Firms
RadarThe Atom BombPenicillanThe man on the moon
After the WarsGoal Understand the world
Incentive Make $$
Goal Make the widget work
Incentive prestige fun the social good
CentralResearch Labs
UniversitiesFoundations
Office of Naval Research
NIH
NASA DOD TraditionalApplied Research
Corporate Research Labsin the Golden Agebull Bell Labsbull RCA Sarnoff Labsbull Xerox Parcbull IBM amp the Watson Labsbull GEbull Alcoabull DuPontbull Kodak
The Golden Age Research Model ldquoBuild it and they will comerdquo
Do the very best science
Make major breakthroughs
Take them to the marketAnd get really rich
For Example
The transistorThe CAT scanner CohenBoyer patent NylonProtease Inhibitors
Core assumptions of ldquogolden agerdquo researchbull Curiosity driven ndash understand the probl
ems and the applications will follow
bull Not overly constrained by financial or cost goals
bull Hire the very best people and give them freedom
bull Stay closely connected to the university and to the community of public science
More recentlyThe Golden Age model in questionbull Many firms unable to capitalize on major discove
ries or benefits take years to emerge ndash The RCA disc ndash Xerox PARC ndash Kevlar ndash Lucent amp Bell Labsbull A significant number of breakthroughs come thro
ugh close usermarket contact not from the corporate labs
ndash EVH examples othershellip
Why would a private firm ever invest in basic researchbull Monopoly power
ndash (Tight appropriability or tightly held complementary assets)
bull Maintain amp attract key people
ndash (Do scientists pay to do good science)
bull Build absorptive capacity
Absorptive Capacity
bull What
ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit
bull Why
ndash Much key knowledge generated outside
raquo ldquoBasicrdquo research
raquo Competitive research
raquo Knowledge elsewhere in the firmbull How
Building absorptive capacity
bull Reading the journals is not enough to understand outside developments one must invest in the science
- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th
at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana
gedincented differently
Current ldquobest practicerdquo attempts tobalance amp integrate the two poles
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Some firms continue to fund centralresearch aggressively
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Genomics Photonics Msoft PampG
But others have moved away from central research completely
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Intel
A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier
3)
bull Organizational structure
bull Control over the central research budget
bull Processes or temporary structures cross functional teams working groups
bull ldquoIn-boundrdquo marketing
Many companies set explicit funding levels
Many firms give some control over central research funding to the business units
Or experiment with alternativeorganizational forms
AR
Science
AR AR
PD PD PD
AR= Applied ResearchPD = Product developmentA= Acquisitions
A A A
Science
AR AR AR
PD PD PD
A A A
Other firms have experimented with hybrid organizational structures
Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy
Focused cross functional coordination More efficient development Development of teamand management skills
Focused attention to multiple objectives Best of both worlds coordination and specialization
Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business
Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills
Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds
Centers of Excellence Teams Matrix
CEO
BVA BVB BVC
function 1
function 2
function 3
CEO
BV1 BV2 BV3
RampD Area 2
RampD Area 3
Heavyweight Project Team
Degree of TeamLeader Influence
Team Leader ENGINEERINGMFGMKG
Market
concepts
All RampD structures have limitations that can (in principle) be managed with the right processes
Making Central Research more Decentralized Making Decentralized Research more Central
Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology
Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines
Pay for PerformanceManaging technical professionals
Pay for Performance
bull Assume that
ndash Output y = a +
ndash Where a is the ldquoactionrdquo taken by the employee
ndash And is noise
Pay for Performance (2)
bull Assume that compensation w is
ndash w = s + by
ndash Where s is salary
bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation
Pay for Performance (3)
bull Will technical professionals (scientists engineers) work harder if b is increased
bull What will happen if b = 0
bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed
Getting what you pay forManaging technical professionals
Getting what you pay for
bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y
bull But we can measure p an approximation to y
bull Let w = s + b(p)
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
Research before the World Wars
ldquoBasicrdquo ldquoCuriosity drivenrdquo research
ldquoAppliedrdquo research
Researchers motivated by the intrinsic interest of the problem orientated to their peers not to application
Choice of problems dictated by individual researchers on the basis of curiosity
Researchers motivated by the desire to make money have an impact on the world
Choice or problems motivated by the needs of the market place
Research before the World Wars
bull ldquoBasicrdquo research makes enormous progress but few firms invest in it
ndash Except the German chemical industrybull Many major technological advances driven by en
gineers ldquotinkeringrdquo ndash Steel Steambull And technological advances that do use science
use old publicly available science ndash Electricity ndash Telephony
Sputnik and the World WarsGoal Understand the world
Incentive prestige fun the social good
Goal Make the widget work
Incentive Make $$
Firms
RadarThe Atom BombPenicillanThe man on the moon
After the WarsGoal Understand the world
Incentive Make $$
Goal Make the widget work
Incentive prestige fun the social good
CentralResearch Labs
UniversitiesFoundations
Office of Naval Research
NIH
NASA DOD TraditionalApplied Research
Corporate Research Labsin the Golden Agebull Bell Labsbull RCA Sarnoff Labsbull Xerox Parcbull IBM amp the Watson Labsbull GEbull Alcoabull DuPontbull Kodak
The Golden Age Research Model ldquoBuild it and they will comerdquo
Do the very best science
Make major breakthroughs
Take them to the marketAnd get really rich
For Example
The transistorThe CAT scanner CohenBoyer patent NylonProtease Inhibitors
Core assumptions of ldquogolden agerdquo researchbull Curiosity driven ndash understand the probl
ems and the applications will follow
bull Not overly constrained by financial or cost goals
bull Hire the very best people and give them freedom
bull Stay closely connected to the university and to the community of public science
More recentlyThe Golden Age model in questionbull Many firms unable to capitalize on major discove
ries or benefits take years to emerge ndash The RCA disc ndash Xerox PARC ndash Kevlar ndash Lucent amp Bell Labsbull A significant number of breakthroughs come thro
ugh close usermarket contact not from the corporate labs
ndash EVH examples othershellip
Why would a private firm ever invest in basic researchbull Monopoly power
ndash (Tight appropriability or tightly held complementary assets)
bull Maintain amp attract key people
ndash (Do scientists pay to do good science)
bull Build absorptive capacity
Absorptive Capacity
bull What
ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit
bull Why
ndash Much key knowledge generated outside
raquo ldquoBasicrdquo research
raquo Competitive research
raquo Knowledge elsewhere in the firmbull How
Building absorptive capacity
bull Reading the journals is not enough to understand outside developments one must invest in the science
- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th
at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana
gedincented differently
Current ldquobest practicerdquo attempts tobalance amp integrate the two poles
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Some firms continue to fund centralresearch aggressively
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Genomics Photonics Msoft PampG
But others have moved away from central research completely
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Intel
A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier
3)
bull Organizational structure
bull Control over the central research budget
bull Processes or temporary structures cross functional teams working groups
bull ldquoIn-boundrdquo marketing
Many companies set explicit funding levels
Many firms give some control over central research funding to the business units
Or experiment with alternativeorganizational forms
AR
Science
AR AR
PD PD PD
AR= Applied ResearchPD = Product developmentA= Acquisitions
A A A
Science
AR AR AR
PD PD PD
A A A
Other firms have experimented with hybrid organizational structures
Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy
Focused cross functional coordination More efficient development Development of teamand management skills
Focused attention to multiple objectives Best of both worlds coordination and specialization
Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business
Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills
Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds
Centers of Excellence Teams Matrix
CEO
BVA BVB BVC
function 1
function 2
function 3
CEO
BV1 BV2 BV3
RampD Area 2
RampD Area 3
Heavyweight Project Team
Degree of TeamLeader Influence
Team Leader ENGINEERINGMFGMKG
Market
concepts
All RampD structures have limitations that can (in principle) be managed with the right processes
Making Central Research more Decentralized Making Decentralized Research more Central
Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology
Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines
Pay for PerformanceManaging technical professionals
Pay for Performance
bull Assume that
ndash Output y = a +
ndash Where a is the ldquoactionrdquo taken by the employee
ndash And is noise
Pay for Performance (2)
bull Assume that compensation w is
ndash w = s + by
ndash Where s is salary
bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation
Pay for Performance (3)
bull Will technical professionals (scientists engineers) work harder if b is increased
bull What will happen if b = 0
bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed
Getting what you pay forManaging technical professionals
Getting what you pay for
bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y
bull But we can measure p an approximation to y
bull Let w = s + b(p)
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
Research before the World Wars
bull ldquoBasicrdquo research makes enormous progress but few firms invest in it
ndash Except the German chemical industrybull Many major technological advances driven by en
gineers ldquotinkeringrdquo ndash Steel Steambull And technological advances that do use science
use old publicly available science ndash Electricity ndash Telephony
Sputnik and the World WarsGoal Understand the world
Incentive prestige fun the social good
Goal Make the widget work
Incentive Make $$
Firms
RadarThe Atom BombPenicillanThe man on the moon
After the WarsGoal Understand the world
Incentive Make $$
Goal Make the widget work
Incentive prestige fun the social good
CentralResearch Labs
UniversitiesFoundations
Office of Naval Research
NIH
NASA DOD TraditionalApplied Research
Corporate Research Labsin the Golden Agebull Bell Labsbull RCA Sarnoff Labsbull Xerox Parcbull IBM amp the Watson Labsbull GEbull Alcoabull DuPontbull Kodak
The Golden Age Research Model ldquoBuild it and they will comerdquo
Do the very best science
Make major breakthroughs
Take them to the marketAnd get really rich
For Example
The transistorThe CAT scanner CohenBoyer patent NylonProtease Inhibitors
Core assumptions of ldquogolden agerdquo researchbull Curiosity driven ndash understand the probl
ems and the applications will follow
bull Not overly constrained by financial or cost goals
bull Hire the very best people and give them freedom
bull Stay closely connected to the university and to the community of public science
More recentlyThe Golden Age model in questionbull Many firms unable to capitalize on major discove
ries or benefits take years to emerge ndash The RCA disc ndash Xerox PARC ndash Kevlar ndash Lucent amp Bell Labsbull A significant number of breakthroughs come thro
ugh close usermarket contact not from the corporate labs
ndash EVH examples othershellip
Why would a private firm ever invest in basic researchbull Monopoly power
ndash (Tight appropriability or tightly held complementary assets)
bull Maintain amp attract key people
ndash (Do scientists pay to do good science)
bull Build absorptive capacity
Absorptive Capacity
bull What
ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit
bull Why
ndash Much key knowledge generated outside
raquo ldquoBasicrdquo research
raquo Competitive research
raquo Knowledge elsewhere in the firmbull How
Building absorptive capacity
bull Reading the journals is not enough to understand outside developments one must invest in the science
- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th
at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana
gedincented differently
Current ldquobest practicerdquo attempts tobalance amp integrate the two poles
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Some firms continue to fund centralresearch aggressively
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Genomics Photonics Msoft PampG
But others have moved away from central research completely
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Intel
A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier
3)
bull Organizational structure
bull Control over the central research budget
bull Processes or temporary structures cross functional teams working groups
bull ldquoIn-boundrdquo marketing
Many companies set explicit funding levels
Many firms give some control over central research funding to the business units
Or experiment with alternativeorganizational forms
AR
Science
AR AR
PD PD PD
AR= Applied ResearchPD = Product developmentA= Acquisitions
A A A
Science
AR AR AR
PD PD PD
A A A
Other firms have experimented with hybrid organizational structures
Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy
Focused cross functional coordination More efficient development Development of teamand management skills
Focused attention to multiple objectives Best of both worlds coordination and specialization
Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business
Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills
Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds
Centers of Excellence Teams Matrix
CEO
BVA BVB BVC
function 1
function 2
function 3
CEO
BV1 BV2 BV3
RampD Area 2
RampD Area 3
Heavyweight Project Team
Degree of TeamLeader Influence
Team Leader ENGINEERINGMFGMKG
Market
concepts
All RampD structures have limitations that can (in principle) be managed with the right processes
Making Central Research more Decentralized Making Decentralized Research more Central
Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology
Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines
Pay for PerformanceManaging technical professionals
Pay for Performance
bull Assume that
ndash Output y = a +
ndash Where a is the ldquoactionrdquo taken by the employee
ndash And is noise
Pay for Performance (2)
bull Assume that compensation w is
ndash w = s + by
ndash Where s is salary
bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation
Pay for Performance (3)
bull Will technical professionals (scientists engineers) work harder if b is increased
bull What will happen if b = 0
bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed
Getting what you pay forManaging technical professionals
Getting what you pay for
bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y
bull But we can measure p an approximation to y
bull Let w = s + b(p)
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
Sputnik and the World WarsGoal Understand the world
Incentive prestige fun the social good
Goal Make the widget work
Incentive Make $$
Firms
RadarThe Atom BombPenicillanThe man on the moon
After the WarsGoal Understand the world
Incentive Make $$
Goal Make the widget work
Incentive prestige fun the social good
CentralResearch Labs
UniversitiesFoundations
Office of Naval Research
NIH
NASA DOD TraditionalApplied Research
Corporate Research Labsin the Golden Agebull Bell Labsbull RCA Sarnoff Labsbull Xerox Parcbull IBM amp the Watson Labsbull GEbull Alcoabull DuPontbull Kodak
The Golden Age Research Model ldquoBuild it and they will comerdquo
Do the very best science
Make major breakthroughs
Take them to the marketAnd get really rich
For Example
The transistorThe CAT scanner CohenBoyer patent NylonProtease Inhibitors
Core assumptions of ldquogolden agerdquo researchbull Curiosity driven ndash understand the probl
ems and the applications will follow
bull Not overly constrained by financial or cost goals
bull Hire the very best people and give them freedom
bull Stay closely connected to the university and to the community of public science
More recentlyThe Golden Age model in questionbull Many firms unable to capitalize on major discove
ries or benefits take years to emerge ndash The RCA disc ndash Xerox PARC ndash Kevlar ndash Lucent amp Bell Labsbull A significant number of breakthroughs come thro
ugh close usermarket contact not from the corporate labs
ndash EVH examples othershellip
Why would a private firm ever invest in basic researchbull Monopoly power
ndash (Tight appropriability or tightly held complementary assets)
bull Maintain amp attract key people
ndash (Do scientists pay to do good science)
bull Build absorptive capacity
Absorptive Capacity
bull What
ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit
bull Why
ndash Much key knowledge generated outside
raquo ldquoBasicrdquo research
raquo Competitive research
raquo Knowledge elsewhere in the firmbull How
Building absorptive capacity
bull Reading the journals is not enough to understand outside developments one must invest in the science
- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th
at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana
gedincented differently
Current ldquobest practicerdquo attempts tobalance amp integrate the two poles
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Some firms continue to fund centralresearch aggressively
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Genomics Photonics Msoft PampG
But others have moved away from central research completely
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Intel
A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier
3)
bull Organizational structure
bull Control over the central research budget
bull Processes or temporary structures cross functional teams working groups
bull ldquoIn-boundrdquo marketing
Many companies set explicit funding levels
Many firms give some control over central research funding to the business units
Or experiment with alternativeorganizational forms
AR
Science
AR AR
PD PD PD
AR= Applied ResearchPD = Product developmentA= Acquisitions
A A A
Science
AR AR AR
PD PD PD
A A A
Other firms have experimented with hybrid organizational structures
Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy
Focused cross functional coordination More efficient development Development of teamand management skills
Focused attention to multiple objectives Best of both worlds coordination and specialization
Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business
Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills
Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds
Centers of Excellence Teams Matrix
CEO
BVA BVB BVC
function 1
function 2
function 3
CEO
BV1 BV2 BV3
RampD Area 2
RampD Area 3
Heavyweight Project Team
Degree of TeamLeader Influence
Team Leader ENGINEERINGMFGMKG
Market
concepts
All RampD structures have limitations that can (in principle) be managed with the right processes
Making Central Research more Decentralized Making Decentralized Research more Central
Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology
Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines
Pay for PerformanceManaging technical professionals
Pay for Performance
bull Assume that
ndash Output y = a +
ndash Where a is the ldquoactionrdquo taken by the employee
ndash And is noise
Pay for Performance (2)
bull Assume that compensation w is
ndash w = s + by
ndash Where s is salary
bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation
Pay for Performance (3)
bull Will technical professionals (scientists engineers) work harder if b is increased
bull What will happen if b = 0
bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed
Getting what you pay forManaging technical professionals
Getting what you pay for
bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y
bull But we can measure p an approximation to y
bull Let w = s + b(p)
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
After the WarsGoal Understand the world
Incentive Make $$
Goal Make the widget work
Incentive prestige fun the social good
CentralResearch Labs
UniversitiesFoundations
Office of Naval Research
NIH
NASA DOD TraditionalApplied Research
Corporate Research Labsin the Golden Agebull Bell Labsbull RCA Sarnoff Labsbull Xerox Parcbull IBM amp the Watson Labsbull GEbull Alcoabull DuPontbull Kodak
The Golden Age Research Model ldquoBuild it and they will comerdquo
Do the very best science
Make major breakthroughs
Take them to the marketAnd get really rich
For Example
The transistorThe CAT scanner CohenBoyer patent NylonProtease Inhibitors
Core assumptions of ldquogolden agerdquo researchbull Curiosity driven ndash understand the probl
ems and the applications will follow
bull Not overly constrained by financial or cost goals
bull Hire the very best people and give them freedom
bull Stay closely connected to the university and to the community of public science
More recentlyThe Golden Age model in questionbull Many firms unable to capitalize on major discove
ries or benefits take years to emerge ndash The RCA disc ndash Xerox PARC ndash Kevlar ndash Lucent amp Bell Labsbull A significant number of breakthroughs come thro
ugh close usermarket contact not from the corporate labs
ndash EVH examples othershellip
Why would a private firm ever invest in basic researchbull Monopoly power
ndash (Tight appropriability or tightly held complementary assets)
bull Maintain amp attract key people
ndash (Do scientists pay to do good science)
bull Build absorptive capacity
Absorptive Capacity
bull What
ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit
bull Why
ndash Much key knowledge generated outside
raquo ldquoBasicrdquo research
raquo Competitive research
raquo Knowledge elsewhere in the firmbull How
Building absorptive capacity
bull Reading the journals is not enough to understand outside developments one must invest in the science
- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th
at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana
gedincented differently
Current ldquobest practicerdquo attempts tobalance amp integrate the two poles
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Some firms continue to fund centralresearch aggressively
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Genomics Photonics Msoft PampG
But others have moved away from central research completely
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Intel
A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier
3)
bull Organizational structure
bull Control over the central research budget
bull Processes or temporary structures cross functional teams working groups
bull ldquoIn-boundrdquo marketing
Many companies set explicit funding levels
Many firms give some control over central research funding to the business units
Or experiment with alternativeorganizational forms
AR
Science
AR AR
PD PD PD
AR= Applied ResearchPD = Product developmentA= Acquisitions
A A A
Science
AR AR AR
PD PD PD
A A A
Other firms have experimented with hybrid organizational structures
Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy
Focused cross functional coordination More efficient development Development of teamand management skills
Focused attention to multiple objectives Best of both worlds coordination and specialization
Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business
Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills
Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds
Centers of Excellence Teams Matrix
CEO
BVA BVB BVC
function 1
function 2
function 3
CEO
BV1 BV2 BV3
RampD Area 2
RampD Area 3
Heavyweight Project Team
Degree of TeamLeader Influence
Team Leader ENGINEERINGMFGMKG
Market
concepts
All RampD structures have limitations that can (in principle) be managed with the right processes
Making Central Research more Decentralized Making Decentralized Research more Central
Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology
Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines
Pay for PerformanceManaging technical professionals
Pay for Performance
bull Assume that
ndash Output y = a +
ndash Where a is the ldquoactionrdquo taken by the employee
ndash And is noise
Pay for Performance (2)
bull Assume that compensation w is
ndash w = s + by
ndash Where s is salary
bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation
Pay for Performance (3)
bull Will technical professionals (scientists engineers) work harder if b is increased
bull What will happen if b = 0
bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed
Getting what you pay forManaging technical professionals
Getting what you pay for
bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y
bull But we can measure p an approximation to y
bull Let w = s + b(p)
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
Corporate Research Labsin the Golden Agebull Bell Labsbull RCA Sarnoff Labsbull Xerox Parcbull IBM amp the Watson Labsbull GEbull Alcoabull DuPontbull Kodak
The Golden Age Research Model ldquoBuild it and they will comerdquo
Do the very best science
Make major breakthroughs
Take them to the marketAnd get really rich
For Example
The transistorThe CAT scanner CohenBoyer patent NylonProtease Inhibitors
Core assumptions of ldquogolden agerdquo researchbull Curiosity driven ndash understand the probl
ems and the applications will follow
bull Not overly constrained by financial or cost goals
bull Hire the very best people and give them freedom
bull Stay closely connected to the university and to the community of public science
More recentlyThe Golden Age model in questionbull Many firms unable to capitalize on major discove
ries or benefits take years to emerge ndash The RCA disc ndash Xerox PARC ndash Kevlar ndash Lucent amp Bell Labsbull A significant number of breakthroughs come thro
ugh close usermarket contact not from the corporate labs
ndash EVH examples othershellip
Why would a private firm ever invest in basic researchbull Monopoly power
ndash (Tight appropriability or tightly held complementary assets)
bull Maintain amp attract key people
ndash (Do scientists pay to do good science)
bull Build absorptive capacity
Absorptive Capacity
bull What
ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit
bull Why
ndash Much key knowledge generated outside
raquo ldquoBasicrdquo research
raquo Competitive research
raquo Knowledge elsewhere in the firmbull How
Building absorptive capacity
bull Reading the journals is not enough to understand outside developments one must invest in the science
- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th
at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana
gedincented differently
Current ldquobest practicerdquo attempts tobalance amp integrate the two poles
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Some firms continue to fund centralresearch aggressively
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Genomics Photonics Msoft PampG
But others have moved away from central research completely
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Intel
A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier
3)
bull Organizational structure
bull Control over the central research budget
bull Processes or temporary structures cross functional teams working groups
bull ldquoIn-boundrdquo marketing
Many companies set explicit funding levels
Many firms give some control over central research funding to the business units
Or experiment with alternativeorganizational forms
AR
Science
AR AR
PD PD PD
AR= Applied ResearchPD = Product developmentA= Acquisitions
A A A
Science
AR AR AR
PD PD PD
A A A
Other firms have experimented with hybrid organizational structures
Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy
Focused cross functional coordination More efficient development Development of teamand management skills
Focused attention to multiple objectives Best of both worlds coordination and specialization
Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business
Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills
Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds
Centers of Excellence Teams Matrix
CEO
BVA BVB BVC
function 1
function 2
function 3
CEO
BV1 BV2 BV3
RampD Area 2
RampD Area 3
Heavyweight Project Team
Degree of TeamLeader Influence
Team Leader ENGINEERINGMFGMKG
Market
concepts
All RampD structures have limitations that can (in principle) be managed with the right processes
Making Central Research more Decentralized Making Decentralized Research more Central
Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology
Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines
Pay for PerformanceManaging technical professionals
Pay for Performance
bull Assume that
ndash Output y = a +
ndash Where a is the ldquoactionrdquo taken by the employee
ndash And is noise
Pay for Performance (2)
bull Assume that compensation w is
ndash w = s + by
ndash Where s is salary
bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation
Pay for Performance (3)
bull Will technical professionals (scientists engineers) work harder if b is increased
bull What will happen if b = 0
bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed
Getting what you pay forManaging technical professionals
Getting what you pay for
bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y
bull But we can measure p an approximation to y
bull Let w = s + b(p)
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
The Golden Age Research Model ldquoBuild it and they will comerdquo
Do the very best science
Make major breakthroughs
Take them to the marketAnd get really rich
For Example
The transistorThe CAT scanner CohenBoyer patent NylonProtease Inhibitors
Core assumptions of ldquogolden agerdquo researchbull Curiosity driven ndash understand the probl
ems and the applications will follow
bull Not overly constrained by financial or cost goals
bull Hire the very best people and give them freedom
bull Stay closely connected to the university and to the community of public science
More recentlyThe Golden Age model in questionbull Many firms unable to capitalize on major discove
ries or benefits take years to emerge ndash The RCA disc ndash Xerox PARC ndash Kevlar ndash Lucent amp Bell Labsbull A significant number of breakthroughs come thro
ugh close usermarket contact not from the corporate labs
ndash EVH examples othershellip
Why would a private firm ever invest in basic researchbull Monopoly power
ndash (Tight appropriability or tightly held complementary assets)
bull Maintain amp attract key people
ndash (Do scientists pay to do good science)
bull Build absorptive capacity
Absorptive Capacity
bull What
ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit
bull Why
ndash Much key knowledge generated outside
raquo ldquoBasicrdquo research
raquo Competitive research
raquo Knowledge elsewhere in the firmbull How
Building absorptive capacity
bull Reading the journals is not enough to understand outside developments one must invest in the science
- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th
at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana
gedincented differently
Current ldquobest practicerdquo attempts tobalance amp integrate the two poles
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Some firms continue to fund centralresearch aggressively
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Genomics Photonics Msoft PampG
But others have moved away from central research completely
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Intel
A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier
3)
bull Organizational structure
bull Control over the central research budget
bull Processes or temporary structures cross functional teams working groups
bull ldquoIn-boundrdquo marketing
Many companies set explicit funding levels
Many firms give some control over central research funding to the business units
Or experiment with alternativeorganizational forms
AR
Science
AR AR
PD PD PD
AR= Applied ResearchPD = Product developmentA= Acquisitions
A A A
Science
AR AR AR
PD PD PD
A A A
Other firms have experimented with hybrid organizational structures
Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy
Focused cross functional coordination More efficient development Development of teamand management skills
Focused attention to multiple objectives Best of both worlds coordination and specialization
Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business
Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills
Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds
Centers of Excellence Teams Matrix
CEO
BVA BVB BVC
function 1
function 2
function 3
CEO
BV1 BV2 BV3
RampD Area 2
RampD Area 3
Heavyweight Project Team
Degree of TeamLeader Influence
Team Leader ENGINEERINGMFGMKG
Market
concepts
All RampD structures have limitations that can (in principle) be managed with the right processes
Making Central Research more Decentralized Making Decentralized Research more Central
Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology
Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines
Pay for PerformanceManaging technical professionals
Pay for Performance
bull Assume that
ndash Output y = a +
ndash Where a is the ldquoactionrdquo taken by the employee
ndash And is noise
Pay for Performance (2)
bull Assume that compensation w is
ndash w = s + by
ndash Where s is salary
bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation
Pay for Performance (3)
bull Will technical professionals (scientists engineers) work harder if b is increased
bull What will happen if b = 0
bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed
Getting what you pay forManaging technical professionals
Getting what you pay for
bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y
bull But we can measure p an approximation to y
bull Let w = s + b(p)
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
Core assumptions of ldquogolden agerdquo researchbull Curiosity driven ndash understand the probl
ems and the applications will follow
bull Not overly constrained by financial or cost goals
bull Hire the very best people and give them freedom
bull Stay closely connected to the university and to the community of public science
More recentlyThe Golden Age model in questionbull Many firms unable to capitalize on major discove
ries or benefits take years to emerge ndash The RCA disc ndash Xerox PARC ndash Kevlar ndash Lucent amp Bell Labsbull A significant number of breakthroughs come thro
ugh close usermarket contact not from the corporate labs
ndash EVH examples othershellip
Why would a private firm ever invest in basic researchbull Monopoly power
ndash (Tight appropriability or tightly held complementary assets)
bull Maintain amp attract key people
ndash (Do scientists pay to do good science)
bull Build absorptive capacity
Absorptive Capacity
bull What
ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit
bull Why
ndash Much key knowledge generated outside
raquo ldquoBasicrdquo research
raquo Competitive research
raquo Knowledge elsewhere in the firmbull How
Building absorptive capacity
bull Reading the journals is not enough to understand outside developments one must invest in the science
- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th
at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana
gedincented differently
Current ldquobest practicerdquo attempts tobalance amp integrate the two poles
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Some firms continue to fund centralresearch aggressively
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Genomics Photonics Msoft PampG
But others have moved away from central research completely
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Intel
A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier
3)
bull Organizational structure
bull Control over the central research budget
bull Processes or temporary structures cross functional teams working groups
bull ldquoIn-boundrdquo marketing
Many companies set explicit funding levels
Many firms give some control over central research funding to the business units
Or experiment with alternativeorganizational forms
AR
Science
AR AR
PD PD PD
AR= Applied ResearchPD = Product developmentA= Acquisitions
A A A
Science
AR AR AR
PD PD PD
A A A
Other firms have experimented with hybrid organizational structures
Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy
Focused cross functional coordination More efficient development Development of teamand management skills
Focused attention to multiple objectives Best of both worlds coordination and specialization
Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business
Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills
Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds
Centers of Excellence Teams Matrix
CEO
BVA BVB BVC
function 1
function 2
function 3
CEO
BV1 BV2 BV3
RampD Area 2
RampD Area 3
Heavyweight Project Team
Degree of TeamLeader Influence
Team Leader ENGINEERINGMFGMKG
Market
concepts
All RampD structures have limitations that can (in principle) be managed with the right processes
Making Central Research more Decentralized Making Decentralized Research more Central
Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology
Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines
Pay for PerformanceManaging technical professionals
Pay for Performance
bull Assume that
ndash Output y = a +
ndash Where a is the ldquoactionrdquo taken by the employee
ndash And is noise
Pay for Performance (2)
bull Assume that compensation w is
ndash w = s + by
ndash Where s is salary
bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation
Pay for Performance (3)
bull Will technical professionals (scientists engineers) work harder if b is increased
bull What will happen if b = 0
bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed
Getting what you pay forManaging technical professionals
Getting what you pay for
bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y
bull But we can measure p an approximation to y
bull Let w = s + b(p)
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
More recentlyThe Golden Age model in questionbull Many firms unable to capitalize on major discove
ries or benefits take years to emerge ndash The RCA disc ndash Xerox PARC ndash Kevlar ndash Lucent amp Bell Labsbull A significant number of breakthroughs come thro
ugh close usermarket contact not from the corporate labs
ndash EVH examples othershellip
Why would a private firm ever invest in basic researchbull Monopoly power
ndash (Tight appropriability or tightly held complementary assets)
bull Maintain amp attract key people
ndash (Do scientists pay to do good science)
bull Build absorptive capacity
Absorptive Capacity
bull What
ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit
bull Why
ndash Much key knowledge generated outside
raquo ldquoBasicrdquo research
raquo Competitive research
raquo Knowledge elsewhere in the firmbull How
Building absorptive capacity
bull Reading the journals is not enough to understand outside developments one must invest in the science
- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th
at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana
gedincented differently
Current ldquobest practicerdquo attempts tobalance amp integrate the two poles
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Some firms continue to fund centralresearch aggressively
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Genomics Photonics Msoft PampG
But others have moved away from central research completely
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Intel
A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier
3)
bull Organizational structure
bull Control over the central research budget
bull Processes or temporary structures cross functional teams working groups
bull ldquoIn-boundrdquo marketing
Many companies set explicit funding levels
Many firms give some control over central research funding to the business units
Or experiment with alternativeorganizational forms
AR
Science
AR AR
PD PD PD
AR= Applied ResearchPD = Product developmentA= Acquisitions
A A A
Science
AR AR AR
PD PD PD
A A A
Other firms have experimented with hybrid organizational structures
Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy
Focused cross functional coordination More efficient development Development of teamand management skills
Focused attention to multiple objectives Best of both worlds coordination and specialization
Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business
Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills
Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds
Centers of Excellence Teams Matrix
CEO
BVA BVB BVC
function 1
function 2
function 3
CEO
BV1 BV2 BV3
RampD Area 2
RampD Area 3
Heavyweight Project Team
Degree of TeamLeader Influence
Team Leader ENGINEERINGMFGMKG
Market
concepts
All RampD structures have limitations that can (in principle) be managed with the right processes
Making Central Research more Decentralized Making Decentralized Research more Central
Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology
Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines
Pay for PerformanceManaging technical professionals
Pay for Performance
bull Assume that
ndash Output y = a +
ndash Where a is the ldquoactionrdquo taken by the employee
ndash And is noise
Pay for Performance (2)
bull Assume that compensation w is
ndash w = s + by
ndash Where s is salary
bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation
Pay for Performance (3)
bull Will technical professionals (scientists engineers) work harder if b is increased
bull What will happen if b = 0
bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed
Getting what you pay forManaging technical professionals
Getting what you pay for
bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y
bull But we can measure p an approximation to y
bull Let w = s + b(p)
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
Why would a private firm ever invest in basic researchbull Monopoly power
ndash (Tight appropriability or tightly held complementary assets)
bull Maintain amp attract key people
ndash (Do scientists pay to do good science)
bull Build absorptive capacity
Absorptive Capacity
bull What
ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit
bull Why
ndash Much key knowledge generated outside
raquo ldquoBasicrdquo research
raquo Competitive research
raquo Knowledge elsewhere in the firmbull How
Building absorptive capacity
bull Reading the journals is not enough to understand outside developments one must invest in the science
- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th
at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana
gedincented differently
Current ldquobest practicerdquo attempts tobalance amp integrate the two poles
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Some firms continue to fund centralresearch aggressively
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Genomics Photonics Msoft PampG
But others have moved away from central research completely
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Intel
A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier
3)
bull Organizational structure
bull Control over the central research budget
bull Processes or temporary structures cross functional teams working groups
bull ldquoIn-boundrdquo marketing
Many companies set explicit funding levels
Many firms give some control over central research funding to the business units
Or experiment with alternativeorganizational forms
AR
Science
AR AR
PD PD PD
AR= Applied ResearchPD = Product developmentA= Acquisitions
A A A
Science
AR AR AR
PD PD PD
A A A
Other firms have experimented with hybrid organizational structures
Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy
Focused cross functional coordination More efficient development Development of teamand management skills
Focused attention to multiple objectives Best of both worlds coordination and specialization
Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business
Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills
Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds
Centers of Excellence Teams Matrix
CEO
BVA BVB BVC
function 1
function 2
function 3
CEO
BV1 BV2 BV3
RampD Area 2
RampD Area 3
Heavyweight Project Team
Degree of TeamLeader Influence
Team Leader ENGINEERINGMFGMKG
Market
concepts
All RampD structures have limitations that can (in principle) be managed with the right processes
Making Central Research more Decentralized Making Decentralized Research more Central
Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology
Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines
Pay for PerformanceManaging technical professionals
Pay for Performance
bull Assume that
ndash Output y = a +
ndash Where a is the ldquoactionrdquo taken by the employee
ndash And is noise
Pay for Performance (2)
bull Assume that compensation w is
ndash w = s + by
ndash Where s is salary
bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation
Pay for Performance (3)
bull Will technical professionals (scientists engineers) work harder if b is increased
bull What will happen if b = 0
bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed
Getting what you pay forManaging technical professionals
Getting what you pay for
bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y
bull But we can measure p an approximation to y
bull Let w = s + b(p)
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
Absorptive Capacity
bull What
ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit
bull Why
ndash Much key knowledge generated outside
raquo ldquoBasicrdquo research
raquo Competitive research
raquo Knowledge elsewhere in the firmbull How
Building absorptive capacity
bull Reading the journals is not enough to understand outside developments one must invest in the science
- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th
at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana
gedincented differently
Current ldquobest practicerdquo attempts tobalance amp integrate the two poles
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Some firms continue to fund centralresearch aggressively
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Genomics Photonics Msoft PampG
But others have moved away from central research completely
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Intel
A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier
3)
bull Organizational structure
bull Control over the central research budget
bull Processes or temporary structures cross functional teams working groups
bull ldquoIn-boundrdquo marketing
Many companies set explicit funding levels
Many firms give some control over central research funding to the business units
Or experiment with alternativeorganizational forms
AR
Science
AR AR
PD PD PD
AR= Applied ResearchPD = Product developmentA= Acquisitions
A A A
Science
AR AR AR
PD PD PD
A A A
Other firms have experimented with hybrid organizational structures
Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy
Focused cross functional coordination More efficient development Development of teamand management skills
Focused attention to multiple objectives Best of both worlds coordination and specialization
Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business
Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills
Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds
Centers of Excellence Teams Matrix
CEO
BVA BVB BVC
function 1
function 2
function 3
CEO
BV1 BV2 BV3
RampD Area 2
RampD Area 3
Heavyweight Project Team
Degree of TeamLeader Influence
Team Leader ENGINEERINGMFGMKG
Market
concepts
All RampD structures have limitations that can (in principle) be managed with the right processes
Making Central Research more Decentralized Making Decentralized Research more Central
Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology
Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines
Pay for PerformanceManaging technical professionals
Pay for Performance
bull Assume that
ndash Output y = a +
ndash Where a is the ldquoactionrdquo taken by the employee
ndash And is noise
Pay for Performance (2)
bull Assume that compensation w is
ndash w = s + by
ndash Where s is salary
bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation
Pay for Performance (3)
bull Will technical professionals (scientists engineers) work harder if b is increased
bull What will happen if b = 0
bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed
Getting what you pay forManaging technical professionals
Getting what you pay for
bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y
bull But we can measure p an approximation to y
bull Let w = s + b(p)
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
Building absorptive capacity
bull Reading the journals is not enough to understand outside developments one must invest in the science
- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th
at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana
gedincented differently
Current ldquobest practicerdquo attempts tobalance amp integrate the two poles
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Some firms continue to fund centralresearch aggressively
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Genomics Photonics Msoft PampG
But others have moved away from central research completely
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Intel
A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier
3)
bull Organizational structure
bull Control over the central research budget
bull Processes or temporary structures cross functional teams working groups
bull ldquoIn-boundrdquo marketing
Many companies set explicit funding levels
Many firms give some control over central research funding to the business units
Or experiment with alternativeorganizational forms
AR
Science
AR AR
PD PD PD
AR= Applied ResearchPD = Product developmentA= Acquisitions
A A A
Science
AR AR AR
PD PD PD
A A A
Other firms have experimented with hybrid organizational structures
Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy
Focused cross functional coordination More efficient development Development of teamand management skills
Focused attention to multiple objectives Best of both worlds coordination and specialization
Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business
Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills
Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds
Centers of Excellence Teams Matrix
CEO
BVA BVB BVC
function 1
function 2
function 3
CEO
BV1 BV2 BV3
RampD Area 2
RampD Area 3
Heavyweight Project Team
Degree of TeamLeader Influence
Team Leader ENGINEERINGMFGMKG
Market
concepts
All RampD structures have limitations that can (in principle) be managed with the right processes
Making Central Research more Decentralized Making Decentralized Research more Central
Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology
Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines
Pay for PerformanceManaging technical professionals
Pay for Performance
bull Assume that
ndash Output y = a +
ndash Where a is the ldquoactionrdquo taken by the employee
ndash And is noise
Pay for Performance (2)
bull Assume that compensation w is
ndash w = s + by
ndash Where s is salary
bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation
Pay for Performance (3)
bull Will technical professionals (scientists engineers) work harder if b is increased
bull What will happen if b = 0
bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed
Getting what you pay forManaging technical professionals
Getting what you pay for
bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y
bull But we can measure p an approximation to y
bull Let w = s + b(p)
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
Current ldquobest practicerdquo attempts tobalance amp integrate the two poles
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Some firms continue to fund centralresearch aggressively
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Genomics Photonics Msoft PampG
But others have moved away from central research completely
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Intel
A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier
3)
bull Organizational structure
bull Control over the central research budget
bull Processes or temporary structures cross functional teams working groups
bull ldquoIn-boundrdquo marketing
Many companies set explicit funding levels
Many firms give some control over central research funding to the business units
Or experiment with alternativeorganizational forms
AR
Science
AR AR
PD PD PD
AR= Applied ResearchPD = Product developmentA= Acquisitions
A A A
Science
AR AR AR
PD PD PD
A A A
Other firms have experimented with hybrid organizational structures
Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy
Focused cross functional coordination More efficient development Development of teamand management skills
Focused attention to multiple objectives Best of both worlds coordination and specialization
Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business
Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills
Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds
Centers of Excellence Teams Matrix
CEO
BVA BVB BVC
function 1
function 2
function 3
CEO
BV1 BV2 BV3
RampD Area 2
RampD Area 3
Heavyweight Project Team
Degree of TeamLeader Influence
Team Leader ENGINEERINGMFGMKG
Market
concepts
All RampD structures have limitations that can (in principle) be managed with the right processes
Making Central Research more Decentralized Making Decentralized Research more Central
Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology
Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines
Pay for PerformanceManaging technical professionals
Pay for Performance
bull Assume that
ndash Output y = a +
ndash Where a is the ldquoactionrdquo taken by the employee
ndash And is noise
Pay for Performance (2)
bull Assume that compensation w is
ndash w = s + by
ndash Where s is salary
bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation
Pay for Performance (3)
bull Will technical professionals (scientists engineers) work harder if b is increased
bull What will happen if b = 0
bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed
Getting what you pay forManaging technical professionals
Getting what you pay for
bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y
bull But we can measure p an approximation to y
bull Let w = s + b(p)
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
Some firms continue to fund centralresearch aggressively
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Genomics Photonics Msoft PampG
But others have moved away from central research completely
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Intel
A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier
3)
bull Organizational structure
bull Control over the central research budget
bull Processes or temporary structures cross functional teams working groups
bull ldquoIn-boundrdquo marketing
Many companies set explicit funding levels
Many firms give some control over central research funding to the business units
Or experiment with alternativeorganizational forms
AR
Science
AR AR
PD PD PD
AR= Applied ResearchPD = Product developmentA= Acquisitions
A A A
Science
AR AR AR
PD PD PD
A A A
Other firms have experimented with hybrid organizational structures
Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy
Focused cross functional coordination More efficient development Development of teamand management skills
Focused attention to multiple objectives Best of both worlds coordination and specialization
Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business
Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills
Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds
Centers of Excellence Teams Matrix
CEO
BVA BVB BVC
function 1
function 2
function 3
CEO
BV1 BV2 BV3
RampD Area 2
RampD Area 3
Heavyweight Project Team
Degree of TeamLeader Influence
Team Leader ENGINEERINGMFGMKG
Market
concepts
All RampD structures have limitations that can (in principle) be managed with the right processes
Making Central Research more Decentralized Making Decentralized Research more Central
Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology
Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines
Pay for PerformanceManaging technical professionals
Pay for Performance
bull Assume that
ndash Output y = a +
ndash Where a is the ldquoactionrdquo taken by the employee
ndash And is noise
Pay for Performance (2)
bull Assume that compensation w is
ndash w = s + by
ndash Where s is salary
bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation
Pay for Performance (3)
bull Will technical professionals (scientists engineers) work harder if b is increased
bull What will happen if b = 0
bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed
Getting what you pay forManaging technical professionals
Getting what you pay for
bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y
bull But we can measure p an approximation to y
bull Let w = s + b(p)
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
But others have moved away from central research completely
ldquoBasicrdquoor ldquofundamentalrdquoscience
ldquoAppliedrdquoresearch
Intel
A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier
3)
bull Organizational structure
bull Control over the central research budget
bull Processes or temporary structures cross functional teams working groups
bull ldquoIn-boundrdquo marketing
Many companies set explicit funding levels
Many firms give some control over central research funding to the business units
Or experiment with alternativeorganizational forms
AR
Science
AR AR
PD PD PD
AR= Applied ResearchPD = Product developmentA= Acquisitions
A A A
Science
AR AR AR
PD PD PD
A A A
Other firms have experimented with hybrid organizational structures
Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy
Focused cross functional coordination More efficient development Development of teamand management skills
Focused attention to multiple objectives Best of both worlds coordination and specialization
Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business
Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills
Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds
Centers of Excellence Teams Matrix
CEO
BVA BVB BVC
function 1
function 2
function 3
CEO
BV1 BV2 BV3
RampD Area 2
RampD Area 3
Heavyweight Project Team
Degree of TeamLeader Influence
Team Leader ENGINEERINGMFGMKG
Market
concepts
All RampD structures have limitations that can (in principle) be managed with the right processes
Making Central Research more Decentralized Making Decentralized Research more Central
Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology
Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines
Pay for PerformanceManaging technical professionals
Pay for Performance
bull Assume that
ndash Output y = a +
ndash Where a is the ldquoactionrdquo taken by the employee
ndash And is noise
Pay for Performance (2)
bull Assume that compensation w is
ndash w = s + by
ndash Where s is salary
bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation
Pay for Performance (3)
bull Will technical professionals (scientists engineers) work harder if b is increased
bull What will happen if b = 0
bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed
Getting what you pay forManaging technical professionals
Getting what you pay for
bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y
bull But we can measure p an approximation to y
bull Let w = s + b(p)
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier
3)
bull Organizational structure
bull Control over the central research budget
bull Processes or temporary structures cross functional teams working groups
bull ldquoIn-boundrdquo marketing
Many companies set explicit funding levels
Many firms give some control over central research funding to the business units
Or experiment with alternativeorganizational forms
AR
Science
AR AR
PD PD PD
AR= Applied ResearchPD = Product developmentA= Acquisitions
A A A
Science
AR AR AR
PD PD PD
A A A
Other firms have experimented with hybrid organizational structures
Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy
Focused cross functional coordination More efficient development Development of teamand management skills
Focused attention to multiple objectives Best of both worlds coordination and specialization
Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business
Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills
Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds
Centers of Excellence Teams Matrix
CEO
BVA BVB BVC
function 1
function 2
function 3
CEO
BV1 BV2 BV3
RampD Area 2
RampD Area 3
Heavyweight Project Team
Degree of TeamLeader Influence
Team Leader ENGINEERINGMFGMKG
Market
concepts
All RampD structures have limitations that can (in principle) be managed with the right processes
Making Central Research more Decentralized Making Decentralized Research more Central
Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology
Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines
Pay for PerformanceManaging technical professionals
Pay for Performance
bull Assume that
ndash Output y = a +
ndash Where a is the ldquoactionrdquo taken by the employee
ndash And is noise
Pay for Performance (2)
bull Assume that compensation w is
ndash w = s + by
ndash Where s is salary
bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation
Pay for Performance (3)
bull Will technical professionals (scientists engineers) work harder if b is increased
bull What will happen if b = 0
bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed
Getting what you pay forManaging technical professionals
Getting what you pay for
bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y
bull But we can measure p an approximation to y
bull Let w = s + b(p)
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
Many companies set explicit funding levels
Many firms give some control over central research funding to the business units
Or experiment with alternativeorganizational forms
AR
Science
AR AR
PD PD PD
AR= Applied ResearchPD = Product developmentA= Acquisitions
A A A
Science
AR AR AR
PD PD PD
A A A
Other firms have experimented with hybrid organizational structures
Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy
Focused cross functional coordination More efficient development Development of teamand management skills
Focused attention to multiple objectives Best of both worlds coordination and specialization
Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business
Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills
Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds
Centers of Excellence Teams Matrix
CEO
BVA BVB BVC
function 1
function 2
function 3
CEO
BV1 BV2 BV3
RampD Area 2
RampD Area 3
Heavyweight Project Team
Degree of TeamLeader Influence
Team Leader ENGINEERINGMFGMKG
Market
concepts
All RampD structures have limitations that can (in principle) be managed with the right processes
Making Central Research more Decentralized Making Decentralized Research more Central
Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology
Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines
Pay for PerformanceManaging technical professionals
Pay for Performance
bull Assume that
ndash Output y = a +
ndash Where a is the ldquoactionrdquo taken by the employee
ndash And is noise
Pay for Performance (2)
bull Assume that compensation w is
ndash w = s + by
ndash Where s is salary
bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation
Pay for Performance (3)
bull Will technical professionals (scientists engineers) work harder if b is increased
bull What will happen if b = 0
bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed
Getting what you pay forManaging technical professionals
Getting what you pay for
bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y
bull But we can measure p an approximation to y
bull Let w = s + b(p)
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
Many firms give some control over central research funding to the business units
Or experiment with alternativeorganizational forms
AR
Science
AR AR
PD PD PD
AR= Applied ResearchPD = Product developmentA= Acquisitions
A A A
Science
AR AR AR
PD PD PD
A A A
Other firms have experimented with hybrid organizational structures
Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy
Focused cross functional coordination More efficient development Development of teamand management skills
Focused attention to multiple objectives Best of both worlds coordination and specialization
Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business
Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills
Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds
Centers of Excellence Teams Matrix
CEO
BVA BVB BVC
function 1
function 2
function 3
CEO
BV1 BV2 BV3
RampD Area 2
RampD Area 3
Heavyweight Project Team
Degree of TeamLeader Influence
Team Leader ENGINEERINGMFGMKG
Market
concepts
All RampD structures have limitations that can (in principle) be managed with the right processes
Making Central Research more Decentralized Making Decentralized Research more Central
Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology
Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines
Pay for PerformanceManaging technical professionals
Pay for Performance
bull Assume that
ndash Output y = a +
ndash Where a is the ldquoactionrdquo taken by the employee
ndash And is noise
Pay for Performance (2)
bull Assume that compensation w is
ndash w = s + by
ndash Where s is salary
bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation
Pay for Performance (3)
bull Will technical professionals (scientists engineers) work harder if b is increased
bull What will happen if b = 0
bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed
Getting what you pay forManaging technical professionals
Getting what you pay for
bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y
bull But we can measure p an approximation to y
bull Let w = s + b(p)
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
Or experiment with alternativeorganizational forms
AR
Science
AR AR
PD PD PD
AR= Applied ResearchPD = Product developmentA= Acquisitions
A A A
Science
AR AR AR
PD PD PD
A A A
Other firms have experimented with hybrid organizational structures
Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy
Focused cross functional coordination More efficient development Development of teamand management skills
Focused attention to multiple objectives Best of both worlds coordination and specialization
Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business
Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills
Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds
Centers of Excellence Teams Matrix
CEO
BVA BVB BVC
function 1
function 2
function 3
CEO
BV1 BV2 BV3
RampD Area 2
RampD Area 3
Heavyweight Project Team
Degree of TeamLeader Influence
Team Leader ENGINEERINGMFGMKG
Market
concepts
All RampD structures have limitations that can (in principle) be managed with the right processes
Making Central Research more Decentralized Making Decentralized Research more Central
Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology
Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines
Pay for PerformanceManaging technical professionals
Pay for Performance
bull Assume that
ndash Output y = a +
ndash Where a is the ldquoactionrdquo taken by the employee
ndash And is noise
Pay for Performance (2)
bull Assume that compensation w is
ndash w = s + by
ndash Where s is salary
bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation
Pay for Performance (3)
bull Will technical professionals (scientists engineers) work harder if b is increased
bull What will happen if b = 0
bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed
Getting what you pay forManaging technical professionals
Getting what you pay for
bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y
bull But we can measure p an approximation to y
bull Let w = s + b(p)
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
Other firms have experimented with hybrid organizational structures
Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy
Focused cross functional coordination More efficient development Development of teamand management skills
Focused attention to multiple objectives Best of both worlds coordination and specialization
Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business
Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills
Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds
Centers of Excellence Teams Matrix
CEO
BVA BVB BVC
function 1
function 2
function 3
CEO
BV1 BV2 BV3
RampD Area 2
RampD Area 3
Heavyweight Project Team
Degree of TeamLeader Influence
Team Leader ENGINEERINGMFGMKG
Market
concepts
All RampD structures have limitations that can (in principle) be managed with the right processes
Making Central Research more Decentralized Making Decentralized Research more Central
Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology
Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines
Pay for PerformanceManaging technical professionals
Pay for Performance
bull Assume that
ndash Output y = a +
ndash Where a is the ldquoactionrdquo taken by the employee
ndash And is noise
Pay for Performance (2)
bull Assume that compensation w is
ndash w = s + by
ndash Where s is salary
bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation
Pay for Performance (3)
bull Will technical professionals (scientists engineers) work harder if b is increased
bull What will happen if b = 0
bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed
Getting what you pay forManaging technical professionals
Getting what you pay for
bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y
bull But we can measure p an approximation to y
bull Let w = s + b(p)
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
All RampD structures have limitations that can (in principle) be managed with the right processes
Making Central Research more Decentralized Making Decentralized Research more Central
Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology
Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines
Pay for PerformanceManaging technical professionals
Pay for Performance
bull Assume that
ndash Output y = a +
ndash Where a is the ldquoactionrdquo taken by the employee
ndash And is noise
Pay for Performance (2)
bull Assume that compensation w is
ndash w = s + by
ndash Where s is salary
bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation
Pay for Performance (3)
bull Will technical professionals (scientists engineers) work harder if b is increased
bull What will happen if b = 0
bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed
Getting what you pay forManaging technical professionals
Getting what you pay for
bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y
bull But we can measure p an approximation to y
bull Let w = s + b(p)
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
Pay for PerformanceManaging technical professionals
Pay for Performance
bull Assume that
ndash Output y = a +
ndash Where a is the ldquoactionrdquo taken by the employee
ndash And is noise
Pay for Performance (2)
bull Assume that compensation w is
ndash w = s + by
ndash Where s is salary
bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation
Pay for Performance (3)
bull Will technical professionals (scientists engineers) work harder if b is increased
bull What will happen if b = 0
bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed
Getting what you pay forManaging technical professionals
Getting what you pay for
bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y
bull But we can measure p an approximation to y
bull Let w = s + b(p)
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
Pay for Performance
bull Assume that
ndash Output y = a +
ndash Where a is the ldquoactionrdquo taken by the employee
ndash And is noise
Pay for Performance (2)
bull Assume that compensation w is
ndash w = s + by
ndash Where s is salary
bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation
Pay for Performance (3)
bull Will technical professionals (scientists engineers) work harder if b is increased
bull What will happen if b = 0
bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed
Getting what you pay forManaging technical professionals
Getting what you pay for
bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y
bull But we can measure p an approximation to y
bull Let w = s + b(p)
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
Pay for Performance (2)
bull Assume that compensation w is
ndash w = s + by
ndash Where s is salary
bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation
Pay for Performance (3)
bull Will technical professionals (scientists engineers) work harder if b is increased
bull What will happen if b = 0
bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed
Getting what you pay forManaging technical professionals
Getting what you pay for
bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y
bull But we can measure p an approximation to y
bull Let w = s + b(p)
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
Pay for Performance (3)
bull Will technical professionals (scientists engineers) work harder if b is increased
bull What will happen if b = 0
bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed
Getting what you pay forManaging technical professionals
Getting what you pay for
bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y
bull But we can measure p an approximation to y
bull Let w = s + b(p)
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
Getting what you pay forManaging technical professionals
Getting what you pay for
bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y
bull But we can measure p an approximation to y
bull Let w = s + b(p)
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
Getting what you pay for
bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y
bull But we can measure p an approximation to y
bull Let w = s + b(p)
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
Getting what you pay for (2)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 +
ndash What will happen
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
Getting what you pay for (3)
bull Suppose
ndash y = a1 + a2 +
ndash p = a1 + a3 +
ndash What will happen
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals
Getting what you pay for (4)
bull Suppose
ndash y = a1 + a2+
ndash p = a3 +
ndash What will happen
Getting what you pay for (5)
bull How likely are these problems to arise when managing technical professionals